Sharp Maruti wage hike spurs great expectations

SummaryA near-50% wage hike at Maruti Suzuki, the country’s largest carmaker, has set off ripples across the vehicle and component manufacturing industry, with workers at other companies haggling for similar deals.

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A near-50% wage hike at Maruti Suzuki, the country’s largest carmaker, has set off ripples across the vehicle and component manufacturing industry, with workers at other companies haggling for similar deals. The September pay hike at Maruti translates into an average monthly salary increase of around Rs 18,000.

Workers at the country’s largest two-wheeler manufacturer Hero MotoCorp are demanding a salary increase by almost three times their current wages. This, when Hero is the industry’s leading paymaster with an average monthly salaries of around Rs 30,000. Top-end workers earn around Rs 40,000; so a three fold increase will take their salary over the R1-lakh mark.

The latest to join the chorus is the union at Hero’s rival Honda Motorcycle and Scooter India, which is demanding an increase of up to Rs 15,000 per month. Currently, the average monthly salary here is around Rs 25,000.

There’s no clarity over the recent wage revision at Hyundai Motor after the company’s recognition of a new workers’ union was challenged by the older union and triggered a strike.

Industry officials term such expectations “unreasonable”, especially in times of a slowdown. “There is definitely pressure on the entire supply chain. Maruti’s move has set high expectations for sure, as every worker with the supplier is aware of the increases there and will soon ask for a similar range at his own end,” an industry official said.

A sharp wage hike is sure to hit the auto companies but a bigger hit is expected on the component industry that employs a lot more workers but has lower ability to absorb a sharp hike thanks to relatively smaller turnovers. While the absolute wages in the component sector may not match the automakers’, a percentage rise of a similar scale is expected to hurt suppliers’ margins significantly.

Employee wages as a percentage of net sales for auto makers such as Maruti Suzuki and Hero MotoCorp in the second quarter of FY13 stood at about 2.9% and 3.7% respectively. In comparison, for big component suppliers such as Motherson Sumi and JBM, employee wages account for a higher 17.2% and 6.5% of net sales in the same period.

Surinder Kapur, chairman and managing director at Sona Koyo Steering Systems said, “It’s obviously not possible to increase wages by the same pace in the component industry, as it will ruin the sector. I am sure workers will understand and would want to preserve their jobs instead,” he said.